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tv   Your Money  CNN  July 30, 2011 1:00pm-2:00pm EDT

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yesterday which suggest the scandal may be a concern in the u.s. as well. coming up in the 2:00 eastern hour, we continue our face to face with margaret cho. she'll be talking about her experience on "dancing with the stars." and later she talks openly about her marriage. a special live edition of "your money" starts right now. we are just over two days away from the date when the united states may not be able to pay all of its bills and minus a deal, we're left with this question -- has washington lost its mind? i'm ali velshi. welcome to a special live edition of "your money." we'll head to capitol hill and the white house in a moment to get the very latest on what is being done to prevent a potential default. we can't say for certain what would happen if the debt ceiling is not raised by august 2nd. we are going to examine that this hour. but crisis and chaos are some of the best guesses that are being offered by some economists. the most recent cnn o.r.c.
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polling says 51% of americans would hold republicans responsible if the debt ceiling is not raised. just 30% would find president obama more responsible. peter moresi joins us. i have to ask you this, you are an economist, you're a well-respected economist and we have spoken together for years. do you have any evidence of what so many conservatives are saying that if we were to increase taxes at all, at all at this point in an economic cycle, that it would actually hurt our economic recovery? >> well, increasing taxes wouldn't hurt anymore than, say, cutting spending. both would decrease the amount of demand in the economy. to say taxes would hurt the economy is kind of code for, cutting spending is okay, but taxes are not. that's simply not true. in fact, raising taxes may be less deleterious than cutting spending. economic theory says so. >> did anything that happened
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yesterday, friday, have any effect on you when you looked at those gdp number that is came in lower than expected for the second quarter, lower than expected in the first quarter and, in fact, for many, many quarters before that? does that worry you about this idea that we are looking to cut so much spending out of our federal budget at this particular point in time? >> i'm not particularly concerned because the spending cuts that both sides are talking about are fairly modest in the first two years. they really bite in 2014 and 2015. but most economists are assuming that somehow or another the economy is going to grow more rapidly, whether it's in the second half or next year or the following year. and i don't see any reason to assume that. things are broken. and they need a good fix. >> absolutely. jeanne sahadi, you've studied
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one plan after another. and they all look like bridges to nowhere right now. in the meantime, there exists the possibility that depending on what happens in the next few days, some people who are expecting a check from the government may not get it. you study this had. who gets paid? who doesn't get paid if we don't have enough money on tuesday or beyond? >> we're hoping to hear from treasury perhaps this weekend, maybe by monday, but hopefully before tuesday as to what their contingency plan is. what everybody knows is that treasury will not have enough money coming in this month of august to pay out what it owes. in fact, it might have to cut spending by about 40% or not pay out about half the bills, something like 80 million bills -- >> why do we keep hearing, jian, that we'll be fine -- what i keep hearing is that we'll be able to pay our bondholders, social security, veterans and active military. that's sort of where -- that
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seems to be the prioritization that some members of congress are putting on this. >> they mean in aggregate, the amount of revenue we get in could cover bond investors and social security payments and maybe a couple of other things. but there's more than a few things on the docket for treasury to pay. so we're looking at government contractors that may not get paid, those are business owners. we are looking at veterans benefits. they may not get paid. active military may not get paid. it's a selfish choice is how white house spokesman carney put it. it's dumb we're being put into the situation to think about it. >> because this is a channel that children might be watching, that's as far as we can go. it is a misinformation campaign, it is wrong for people to be saying that they know how it's going to turn out. it is wrong for people to say that it will not have a detrimental effect. later on in the show, we're going to talk to bill gross, one of the foremost bond investors in the world, to get his take on this. chrystia freeland joining us
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now. chrystia, between the recent job numbers, the recent gdp numbers and the fact that we are now on the brink of doing something that could cause interest rates to go up, chrystia, are we in a position where we might actually be causing our economy more harm in the effort to do it good? >> yes, absolutely. bob reuben said to me if the debt ceiling is not extended in time, this will be the greatest unforced error in economic history. and i think that's absolutely right. the thing to really remember is this is not an imposed crisis. it's not like lehman where there was an external issue there. this is a manmade, congress-made crisis. and with the weakness of the economy that you rightly pointed out, it is really irresponsible to be playing with this sort of thing. >> it is highly irresponsible. i want to let my control room
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know that i don't actually have any video of what's on tv. i do have to tell you, there's this issue of the newness of what we're doing. in fact, there's nothing new about raising the debt ceiling. it's been raised 78 times since 1960. it's usually considered a formality. peter, if anyone opposes raising the debt ceiling is going to be brand add lunatic who wants to send the country into financial armageddon, why do we have this debt ceiling? the only other country that has it is denmark and it has it for very different reasons. >> it's really a political construct. the congress thinks it's constraining itself by raising the debt ceiling. i can remember this being discussed when i was a kid in junior high school. it's an absurd situation. to not raise the debt ceiling is like drilling a hole in the bottom of your own boat. >> i want to talk to you about this, chrystia. what is this talk about how we
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cannot in this kind of economy -- we cannot raise taxes unless you're an economy that's going gangbusters. we would love that if we were growing 3%, 4% a year, we wouldn't have to raise taxes. why do people say something that is not proved to be true as all and yet it's accepted truth in washington, both the republicans and the democrats, putting forth plans that do not deal with any increase in taxes whatsoever? >> i think peter had it exactly right. the truth is right now with the economy being so weak -- and it really is profoundly weak, and it has been weak for two years now, three years. you shouldn't be raising taxes immediately and you shouldn't be cutting spending immediately. what you should be doing is thinking of a medium-term plan to get the deficit under control. and even studies by conservative institutes suggest that the only way you get a deficit under control is by both raising taxes and cutting spending. >> chrystia, let me interrupt
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you for a second. i want to go to the floor of the senate where harry reid is speaking right now. let's in to what he's got to said. >> my friends on the house side to show how they're gaming the system over there, mr. president. they're going to have a vote on my proposal, on suspension -- this is for naming courthouses and little measures that are of little importance. but yet this important matter, this matter dealing with the debt limit of this country will take a two-thirds vote to pass over there. so they have gamed this system from the very beginning. and as i said, mr. president, earlier from the "new york times" article, it's not complicated. republicans have in effect taken america hostage threatening to disrupt the essential business government.
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so they're going through the -- as i understand on the house side, an effort to vote on our legislation. setting up a two-thirds standard, get this done, recognizing, of course, mr. president, that i will outline here in a minute, that a filibuster at this late hour here in the senate and when so much is at risk is really irresponsible. and to say it puts our economy at risk is an understatement, that's for sure. majority vote, i repeat was good enough for the speaker's proposal in the house. but republicans believe it isn't good enough for the senate today. rather than filibuster, i ask my republican colleagues to work with democrats to make our proposal better. we've offered a reasonable, rational way for republicans to help us avert default. >> we're going to stay with that. we'll be listening to it. i'll bring you back into that when there's something you need to know. we're going to take a break.
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i want peter, jian and chrystia to stay there. last night on tv, i made a point. in the last six days, the stock market, american companies have lost $700 billion in market capitalization. i got a nonsense tweet from someone to say, here you go again worrying about america's companies. so for you who missed the point, let me put it a different way. in the last six days, we have lost $700 billion in the stock value of companies that you hold in your 401(k)s, your iras, your retirement, you lost that money. this nonsense in washington cost you $700 billion already, talking about trimming a trillion here and adding a trillion there. $700 billion, poof, gone from the economy. we're going to talk about how much this is really hurting everybody on the ground. and we're giving you a chance to express yourself on twitter. tweet us, our handle. @cnnyourmoney. we are running your tweets across the show.
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we're going to talk about what you want to talk about. this story changes every hour. we have correspondents at the white house, at capitol hill. we are tracking it all. we'll head to them live next on this special edition of "your money."
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[oinking] [hissing] [ding] announcer: cook foods to the right temperature using a food thermometer. 3,000 americans will die from food poisoning this year. check your steps at let's stop the bickering. let's stop the show of disrespect between the different parties as well as the parties and the president and get down to business. let's get out of this mess that we're in, regardless of who got us here and how it happened. we've never defaulted on a loan. let's not start now. let's not shipwreck this country. >> mar lean cox, canton, ohio, that was beautifully said. this is a live special edition of "your money" with your voice and your tweets. joe johns and athena jones are all over the debt ceiling debate. they're tracking the latest developments. joe, let's start with you on capitol hill. speaker boehner's bill was
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tabled by the senate last night. that means it's not going to get voted on. nothing is going to be done with it. so what is happening now? >> reporter: it's a tennis match really. as you know, the senate democratic leader harry reid has a bill he's trying to push through before tuesday. but meanwhile, the house of representatives controlled by republicans has jumped the gun. they've taken harry reid's bill. they're putting it on the floor. they're going to debate in about 40 minutes. and then it's going to be over with and presumably it's going to be down in flames. and so you ask, well, what's the reason for this? i talked to one senate house republican aide who told me, they're doing this to send a message to the senate that their bill can't pass, won't pass and to stop wasting their time on it. so you've got to ask yourself, what would pass? there was one democrat right here just a few hours ago, barney frank, the ranking democrat on the house financial services committee, i asked him
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to give me an idea of what he thought both republicans and democrats could co ales around and get a bill to the president's desk. >> significant reductions going forward, not immediate in domestic and military spending, deferring the tax issue for when the bush tax cuts expire, and not cutting social security and medicare benefits are things we can look at, including in my point, further taxation of the upper income, social security and medicare benefits. that's a package that could pass. >> reporter: the big question is what's going to happen over here in the united states senate. they have this bill they continue to work on. the big question for them is whether all the adults are going to get in a room, talk about this thing and hash out something that looks like a compromise. we have pictures of republican leader mcconnell on the floor -- >> he's talking right now.
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>> reporter: and the point with him is that he has actually told democrats he doesn't want to sit down with them unless a representative from the white house is in the room. so the question is, why is that? it's pretty obvious. he says that senate democrats do not have the authority to sign off on anything unless the president agrees to it. so it sounds like he just doesn't want to waste his time. >> in the meantime, they're wasting our time. barney frank talked about the top earners in the country. the top 1% of earners in this country have an effective tax rate on their income of 19%. think about that as we listen in to senate minority leader mitch mcconnell right now. >> in the hopes we can come together behind something that can pass both the senate and the house and be signed into law before tuesday. now, i don't blame anybody for being confused about what's been going on here in congress this week. but i'd like to take a moment to explain what's going on right now.
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last night, the democrats who control the senate, proposed a bill that would lead to the largest debt ceiling increase in the history of the united states and which completely ignores the root of this crisis. this bill has one goal -- to get the president through this next election without having to have another national debate about the consequences of his policies. the president wants to make sure this kind of debate doesn't happen again even as he gives democrats in congress permission to add trillions more to the debt. that's what the reid bill does. it isn't going anywhere, as i just described. it will not pass the senate, it will not pass the house. it is simply a non-starter. senate republicans refuse to go along with this transparently political and deeply irresponsible ploy to give the president cover to make our debt crisis even worse than it already is. and 43 of us, as i indicated
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earlier, have now signed a letter to the majority leader saying, we will not -- >> you can see that's senate minority leader mitch mcconnell speaking. we'll continue to listen in to him and bring it back to you. look at the bomb of the screen, we're running your tweets, by the way. tweet @cnnyourmoney. athena jones is at the white house. what is that that joe just told us about that mitch mcconnell says he's not going to negotiate with harry reid and senate democrats unless there is a representative from the white house involved? why and what's the white house got to say about that? >> reporter: well, certainly the white house say there have been discussions, there are ongoing discussions at every level from people at the white house, from the president on down with members of congress and their staffs. those conversations continue. and while there's no meeting on the public schedule today, certainly that could change at any moment. the white house is standing ready to respond.
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and if congressional leaders believe having a meeting here at the white house would get them to a breakthrough in this compromise, they're going to be willing to meet. but most of the action in front of the cameras is taking place there on the hill. but it doesn't mean that folks here at the white house are sitting idly by or sitting on their hands. the president has used several ways to try to keep the pressure on congress. we saw him come out on monday and give a speech. yesterday he gave a speech. and early this morning, in the weekly address, he tried to explain what the consequences would be if congress fails to reach a deal by tuesday. he says he made the point of saying this money, this vote to raise the debt ceiling is not so that congress can spend more money. it's so the country can continue to pay the bills it already owes, bills that congress has already racked up. so things like social security checks, veterans benefits, checks to pay the military and, of course, payments to debt holders. one more thing that's important to note, the country won't be in default until it actually misses
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a payment to debt holders. and, of course, treasury -- >> that's a republican talking point that is wrong. ben bernanke and standard & poor's have both said if you miss a payment on anything, you're in default. it's a talking point that republicans continue to like to use that we are going to put an end to on this show. athena, thanks very much. joe johns, thank you very much. america may be on brink of another financial disaster but some members of the tea party insist that now is the time to give in. others have been entirely unreasonable. we found one of those tea party members who we always find to be informed and reasonable about the economy. he's here to explain to us why they will not talk about tax increases after this. uh, i'm in a timeout because apparently
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the stand-off over how to raise the debt ceiling continues at this hour. but one group of republicans, those influenced by the tea party, do not necessarily see this as a bad thing.
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mark skoda is the founder and chairman of the memphis tea party. mark, according to a cnn o.r.c. poll, 63% of people do not believe the gop has acted responsibly in talks on the debt ceiling. most americans want a compromise that involves cuts and increases and a small minority -- or i guess a big minority of republicans think we need a compromise solution and yet they are being held back by the tea party and by their promises to grover norquist and the americans for tax reform that say they can't increase taxes. we've lost $700 billion in the stock market in the last six trading days. we've started to see interest rates move up already. why is this better? why is everything we're going through now better and the risk of a default than compromising on taxes? >> well, first, let me say, we're not going to risk a default.
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moody's late friday put out a note that suggested as long as we arrange to pay our bondholders' interest and principal -- >> ben bernanke said if you default on anything, you're -- >> fitch has already downgraded us. you know that. >> but we have to tell the whole story. if we say that's not going to happen, we have to tell the rest of the story. that's why its dangerous. you're informed about it but a lot of people aren't. >> let's talk about taxes, as you point out. we're going to have $530 billion of new taxes beginning in 2013. so the tax increases for obama are already there. their plan in the obama health care act which has now law, that is first point. we've got half a billion dollars more in taxes being created. we need to have this fight right now about whether or not we're
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going to pay our bills and how we're going to pay the bills. i've suggested that we need the boehner plan as it was initially proposed. i was supportive of it because it put the onus back on the democrats. it was a two-step process. but as you know, for the past roughly 72 times on average, we have raised the debt ceiling about seven months. now, it is unique in the situation that when we looked at 2010 when this debt ceiling question became about that the president did not wish to have a raise occur on his watch during 2010. as you know, the democrats who held a super majority could have raised it to $20 trillion or a $5 trillion budget and they've done neither. and that's what i think is problematic here. to be sure, the democrats are very good at demagoguing. the president has had the bully pulpit. i give him kudos for his opinion to sway public opinion. we need to get a proper deal done. i would agree, is it good enough to raise it until july of next
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year, that's almost 12 months, is it enough? no, because the president doesn't want to talk about this issue. it becomes the fundamental question about america. do we wish to deal with our long-term liabilities and the deficit spending or are we going to continue to allow this kick the can down the road. the truth of the matter is -- go ahead. >> that's a good question, mark. we're going to address that. stick around. i'm going to have you talk about this and our panel. the man that washington leaders turn to break down the bond market is here to speak directly to you to tell you what you need to do to protect your money. send us a tweet,@cnn "your money." give us your opinion. ♪ [ whistles ] ♪ [ cat meows ] ♪ [ ting! ] [ male announcer ] travelers can help you protect the things you care about and save money with multi-policy discounts. are you getting the coverage you need
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disaster. >> ridiculous. >> joke. >> irresponsible. >> it's pitiful. >> stupid. >> ridiculous. >> horrible. >> complex. >> pitiful. >> disastrous. >> i think it sucks. >> couldn't have said it better myself. mark skoda, chrystia freeland,
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peter morici and jeanne sahadi are back with us. jeanne, how many times -- when this debt ceiling discussion had i had hair. how many times have you heard me say this thing is being run by bumper stickers. one is that tax increases will hurt our economy. number two is it's not a revenue problem it's a spending problem. and number three, it's only a default if you miss interest payments or principal payments. i want to start with the last one. let's get clarity on this one. ben bernanke has said and others have said, just like if you miss a credit card payment but you still pay your mortgage, the credit rating agency knows you missed your credit card payment but did pay your mortgage, your credit rating can still go down. it's not all that different with s&p. >> i think the chances for a downgrade are much greater if you do miss the interest and principal payments.
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i think it's interpretational going forward. fitch said if there are extensive arrears in payments to contractor, that's going to be a question of sovereign creditworthyness. but it's sort of immaterial to me. it's terrible for the largest economy in the world to miss payments, period. we shouldn't be ticking off half the economy because we can't make a decision in washington. while i appreciate mr. skoda's position that maybe the president is saying, let's extend the debt ceiling past the election for political reasons, it's equally political to want use the debt ceiling to bludgeon -- it perverts the argument the country needs to have -- the debate, rather, about how to reduce the debt. it's a very important discussion we have. i credit the tea party and the republicans with bringing it to the floor. but it is getting perverse at this point. >> is it fair to characterize you as conservative, economically, peter?
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>> that would be correct. >> sit fair to say that fiscal conservatives are getting a little bit hurt by the inflexibility of some of those people, not mark skoda, our beloved mark, but by some people in the tea party and some of those freshmen conservative and some of the fiscal conservatives who signed grover norquist's pledge? it's handcuffing them from making a deal that could be good economically for the country or could get them something down the road. >> fiscal conservatives would like the government to spend less money, though many of us recognize the need for taxes. and the tea party has to recognize that they have won working control of one half of the two political branches of government that set policy. they cannot change the fiscal policy of the united states by simply dictating it or holding it hostage. what they can do is cause calamity. and we are facing that simply because we haven't made adequate plans to deal with tuesday and because we have all this terrible inflexibility.
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i'm becoming very impatient with these people. >> chrystia, what's your sense of what's going to happen and what's the best road to get there -- we all agree it's dumb we're having to have this discussion. i like my saturday afternoons not in a tie and a vest. what's the best way to get to where we have to go? >> you're asking me to have a crystal ball, ali. and it's so hard when the players are quite unpredictable. what i am actually astonished by is carrying on from peter's remarks. it seems to me that the conservative republicans have won a really major victory. if you go back to that interview with barney frank, he was talking about a deal that would be accept to believe him. and he is considered to be a liberal democrat. he's not someone on the middle or on the right. an acceptable deal with him would not include any tax increases. so he is saying he would be willing to sign up for a deal that cuts spending significantly and pushes the question of tax increases down the road. that is a huge victory for the republicans.
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so what's kind of amazing to me is that the republicans aren't willing to pocket that and say, wow, we've really won. what i think has really come into play is the politics of the 2012 election. and if you think about what's going on, really, it's not a debate right now so much about the contour of a deal. it's a debate about timing. and that, to me, is the real irresponsibility. this is really a debate about trying to make 2012 really difficult for the president to run again in an election. it's not really a debate about ideology anymore. >> mark skoda, founder of the memphis tea party, you've heard the criticisms. last word to you. >> the issue of compromise is necessary. we've done yeoman's work. and i think the republicans and john boehner and his leadership with one house, the house of representatives, have gotten this dialogue around no taxes and a reduction in spending. i think the question is, how far the politicals are going to play
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out for the 2012 election. that's always what this has been about. the president understood that. it's what it was about in 2010. the compromise needs to happen, unquestionably. we've won the argument. i think this dialogue has to take place throughout 2012. let's pocket the wins, let's go home, get this thing fixed and look at real cuts -- >> why are those freshman democrat who is came in on the wind of the tea party not accepting that? they continue to give interviews on cnn saying, i'm not budging on this. you sound like you're compromising. peter morici is a conservative. he thinks it's time to take the win and go on to the next one. are you telling these members of congress, guys, stop it? >> i'm going to be excoriated for saying what i have said today. the president vetoes anything he wants to veto and we're losing the argument. i'm against, frankly, passing this by 2012. but if we could get a big cut,
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as barney frank said, and get verifiable cuts, let's get verifiable cuts going forward. i think boehner's done a great job at that point. it's a tough, tough situation. we're not in the house. we're out here commenting. >> thank you, mark. i appreciate that, mark skoda is the founder of the memphis tea party. jeanne sahadi of cnn money. peter morici, stay where you are as well as chrystia freeland. what happens if the u.s. does lose that prized aaa credit rating? we'll talk about that next with bill gross of pimco. so, what are we going to do with this?
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i just want to give you some news. all 43 republicans in the senate, all 43 republican senators have signed a letter that's just been released saying they will not vote for a democratic plan to raise the debt limit. that is a sign that the measure, the reid measure does not have the support that it needs to advance in congress. your tweets are at the bottom of the page. send them in to @cnnyourmoney. bill gross is the founder and co--chief investment officer at pacific management investment company, known as pimco. he is quite possibly the most important bond man in the world. bill, good to have you.
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we've been listening to everything you have to say. let me ask you this, economics 101, probably in the first week of classes says that if an entity, a government, an individual, a business is at more risk of not paying its bills in a timely fashion, the cost for that entity to borrow increases. tell me how that lesson from economics 101 plays out into this discussion. sit still valid? >> well, certainly it's still valid, ali. thank you for having me. i enjoy your program every saturday morning out here in california. yeah, i think risk spreads, interest rates go up if a creditor is at risk of not paying its debts. we saw it in california. california in 2009, for instance, april of 2009, began to issue i.o.u.s. and the cost of that debt that later came to pay them off was
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100 basis points than it was before the i.o.u.s. the cost to the issuer goes up by increments of 25, 50, 100 basis points. >> 100 basis points, one percentage point. this is a fine point of debate. but you're one of these guys who trades in bonds. so you mentioned if they stiff their creditors or vendors. now, some are saying moody's is st saying they're only considering stiffing creditors. ben bernanke said it could be anybody. as a guy who buys and sells bonds, would you see it differently if the u.s. defaults on interest or principal versus not paying bills to vendors or other expense that is it has? >> well, certainly there's a distinction. i think the treasury has laid out the distinction and worked
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with the fed over the past few days to make sure that debt holders are paid first and those in lesser priority in terms of social security and the like. so it does make a difference. but to the extent that anyone does not receive their payments on time, it basically lessens the reputation of the united states. this debt crisis has numerous implications for the economy and the investment marketsment we're speaking to lower growth. we're speaking to higher interest rates that i just talked about. we're speaking to a lower dollar. >> right. >> and reduced confidence in financial markets and the ability of washington policymakers to stabilize them going forward. congress has basically proven itself to be dysfunctional and this will carry on for months, even if the crisis is basically resolved over the next few days. >> bill, let me ask you this. i'm going to put up a map. moody's and standard & poor's, if you take both ratings of aaa countries around the world, you come out to about 15 countries. eef of those rating agencies
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have a couple of more that are aaa. legendary hedge fund manager jim rogers says the u.s. doesn't belong in this club and should have been downgraded years ago. do you agree and do you think there's a downgrade coming regardless of what happens between now and tuesday? >> well, eventually there's a downgrade coming. it depends on moody's, standard & poor's and fitch. and they're very slow moving. this country has $10 trillion to $12 trillion worth of outstanding debt. in addition, however, we've got about $60 trillion worth of liabilities. i call this a debt man walking -- you're a debt man walking. i'm a debt man walking. we all are. basically what that means is that instead of a piece of paper at $10 trillion to $12 trillion and counting, we have liabilities going forward for medicare, for medicaid, for social security that total about $60 trillion.
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so in combination, we have a $70 trillion debt that's five to six times gdp. it puts us in the categories of the countries in the worst debt. >> bill, stay where you are. we're going to take a break. we'll be back in a second with bill gross, co-chief of pimco. ♪ my only sunshine ♪ you makes me happy ♪ when skies are grey ♪ you'll never know, dear ♪ how much i love you ♪ please don't take my sunshine away ♪ [ male announcer ] as long as there are babies, they'll be chevy's to bring them home. ♪ didn't really know what i wanted to do. didn't like high school. and then i met my teacher, mr. mccooey, and that click happened.
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bill gross, founder and co-chief investment officer of pimco is back, along with chrystia freeland, peter morici and jeanne sahadi. american is risking a default if the debt ceiling is not raised by august 2nd. credit ratings may downgrade the rating. unless we default on an actual payment, we don't have to get our debt downgraded. but according to ben bernanke, some people see it as a default on if you default on any payment you're supposed to make, even if
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it's not to a bondholder. we may still get a downgrade anyway. >> bill, you said u.s. treasuries weren't a great investment anyway because there are 15, 16, 17 other countries with really good credit ratings that pay more interest than america does anyway. if we and if, as some people think, interest rates might go up a little bit, are american bonds a good buy? are they a good deal? are they a worthwhile investment or substantially better investments in the world? >> yeah, i think there are better investments. we call them cleaner dirty shirts. most countries have a lot of debt, but some have a half of what we have in the united states. and their interest rates, as you imply, are in some cases one, two, 3% higher than what we see in the treasury market and average yield of which is about 1.5%. so you know, an investor needs to look outside the united states. let me give you an example of what has happened to the chinese in terms of their treasuries
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over the past year. they basically have been investing in treasury bills at ten basis points or 15 basis points, all the while the value of their dollar holdings in terms of the dollar's depreciation relative to a basket of currencies has gone down by about 15%. so the chinese, and let's put ourselves in the place of the chinese, the chinese have not only earned a paltry ten basis points on their treasury bulls but lost 15% in terms of global purchasing power. americans have to look at it from that perspective. >> i want to take that point over to peter for a second. peter, you're a professprofesso explain this well, this idea that this will have an impact, a downward negative impact on the u.s. dollar. what does that do to our economy? >> it will make everything we buy more expensive. we certainly want currency adjustments to be competitive, but we don't want them for this reason. people are pointing out that
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australia, canada, japan have had downgrades without much effect on their interest rates. i would suggest their circumstances were significantly different than ours. they never had an august 2nd where they pay the bond holders but miss the vendors and so forth. if you take a lower dollar, but you couple that with higher interest rates, you lose the benefit of a lower dollar. it strangles you in another way. this is not a good outcome. >> all right. peter, thanks very much. bill gross, good to talk to you. thank you very much. you guys are -- hold on. i'm not at the end of the hour. i'm ahead of myself. i'm the opposite of congress, i'm wrapping up too quickly. stay right there. we're taking the bills. he'll be rig i'll be right back with all four of you.
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it gets under your skin. all right, let's go back to
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our panel now. christa from reuters, watching this very, very closely. you've got a global view at reuters, one of the reasons we enjoy talking to you. what is the scar going to look like after tuesday one way or the other? >> i have one thing that really keeps me up at night that hasn't been mentioned in this great conversation. and that is in august, $500 billion of u.s. debt matures and has to be rolled over. that means the u.s. has to go out there in the midst of this chaos and persuade people to invest $500 billion in u.s. treasuries. now, half of the buyers of treasuries tend to be from outside the united states. so that, for me, is going to be the really, real tough moment of truth and the moment when issues like an increase in interest rates and therefore the cost of all of this to u.s. taxpayers really comes to the fore. that's what i'm scared of. >> you put that very well. we don't have to translate that for our viewers. all of them remember 2008 in the financial crisis having to go back and refinance your mortgage
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or somehow convince somebody to give you more money. sometimes it works, sometimes it didn't. many times even if you were a good bet and you had good reasons for it, your cost of borrowing that money got higher. your thoughts right now. i'm not going to call them last thoughts because you're not going anywhere. you and i will be working all weekend. >> you are asking me for my thoughts? >> yes. >> here are my interim thoughts. we need to worry about a downgrade if we don't come up with a long-term debt reduction plan that is bipartisan. and that is credible. credible means everyone is going to be able to stick to it. that's why you can't just do it on a spending cut side. it is going to be too draconian and it has to have bipartisan buy-n the ratings agencies will be like, that's not going to work. we do risk a downgrade anyway, even if lawmakers at this point figure out how to raise the debt ceiling by tuesday. >> for a sophisticated bond buyer, does the downgrade that you think is inevitable, does
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that actually matter at this point? in other words, has that damage been done and we're going to trade the way we trade? >> no, i think it matters. not only in downgrade the aa plus but perhaps to lower than that. the chinese have a rating agency and they rate u.s. debt a plus. so turnabout, i suppose, is fair play. the one thing -- i want to comment on in terms of the entire situation in terms of the debt ceiling is that the republicans and the tea party candidates basically are operating under the wrong premise. they think by cutting the deficit and balancing the budget that that will be growth positive. i suspect it is not. i call that the new laugher cur curve, not laffer, but laugher. we reduce the deficit by 5 prosecution the private secretasector has to come back in with a 5% positive. we know they're not investing in investment nor in people. so reducing 5% in the deficit is really a growth negative
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proposition. >> you have closed the show with the very point at which i opened it. i think everybody in this country is welcome to their views about it. there is nothing wrong with views from people who want more -- less spending and those who think we need to make it up with taxes, but to suggest that we can do it one way or the other, that is a math i have never studied. bill gross, thank you very much for being with us. bill gross, founder and co-chief investment officer at pacific investment management company or pimco. and peter morici of the university of maryland school of business. jean sahadi, senior writer at cnn money. and christa friedland, from reuters digital. that will do it for us for this special live edition of "your money." we're fully staffed 24/7 here at cnn. we're watching what is going on on capitol hill in the senate now interpreting that, figuring out what the options are. jean and her team at are crunching the numbers and explaining what this means to you. you have already lost a lot of


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